Case Briefs

A key indicator of the future of Indiana law is currently pending before the Indiana Supreme Court in National Union Fire Insurance Co. v. Standard Fusee Corp., 917 N.E.2d 170 (Ind. Ct. App. 2009), transfer granted, in which the Indiana high court is expected to revisit, inter alia, the interpretation and application of the absolute pollution exclusion under Indiana law.

Laura A. Foggan, a partner, and Parker Lavin, an associate, at Wiley Rein LLP, contributed this month's Case Brief. Foggan is a member of this newsletter's Board of Editors.

Indiana Appellate Court Bound By Precedent Finding Pollution Exclusion Ambiguous

The Court of Appeals of Indiana, applying Indiana law, has held that according to prior Indiana high court precedent an absolute pollution exclusion for bodily injury or property damage arising out of “the actual, alleged, or threatened discharge, dispersal, seepage, migration, release or escape of pollutants” is ambiguous and therefore unenforceable. State Automobile Mutual Insurance Co. v. Flexdar, Inc., No. 49A02-1002-PL-00111 (Ind. Ct. App. Nov. 22, 2010). In affirming the trial court's decision, the appellate court deemed the exclusion ambiguous despite the presence of a policy endorsement stating that the pollution exclusion “applies whether or not such irritant or contaminant has any function in [the insured's] business, operations, premises, site or location.” The appellate court also held that the policyholder could not introduce subsequent policy provisions as evidence of the meaning of the policy at issue.

The policyholder manufactured rubber stamps and printing plates in Indiana. One of the insured's engraving machines used an industrial solvent, trichloroethylene (“TCE”), which leaked from the premises and contaminated subsoil and groundwater. In 2003, the state government ordered the policyholder to investigate the TCE leak. The policyholder sought defense and indemnification under applicable commercial general liability policies, which contained a version of the 1998 ISO absolute pollution exclusion. The policy defined “pollutants” as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemical and waste.” The insurer agreed to provide a defense under a reservation of rights and filed a declaratory judgment action based on the pollution exclusion.

The Indiana intermediate appellate court cited several prior Indiana cases that had held that absolute pollution exclusions were ambiguous and that coverage was not precluded under the exclusion. See American States Insurance Co. v. Kiger , 662 N.E.2d 945 (Ind. 1996); Seymour Manufacturing Co., Inc. v. Commercial Union Insurance Co. , 665 N.E.2d 891 (Ind. 1996) (exclusion did not preclude coverage for leakage of contaminants from insured's waste disposal facility), Travelers Indemnity Co. v. Summit Corp. of America , 715 N.E.2d 926 (Ind. Ct. App. 1999) (following Kiger and finding no coverage for damages caused by chemicals leak associated with insured's electroplating operations), Freidline v. Shelby Insurance Co. , 774 N.E.2d 37 (Ind. 2002) (absolute pollution exclusion did not bar coverage for the release of toxic fumes from a commercial building's carpet glue). In discussing Summit, the court quoted its prior language from that opinion that it might find the exclusion clear if it were “writing on a clean slate,” but that it was bound by the higher court precedent of Kiger and Seymour. The court concluded that it “is within the province only of our Supreme Court to decide otherwise.”

Finally, the court rejected the policyholder's attempt to introduce into evidence a new policy form that the insurer introduced after the relevant policies had expired that specifically identified TCE as a pollutant under the pollution exclusion. In affirming the trial court's evidentiary determination, the appellate court stated that the insurer's subsequent revision of the pollution exclusion was inadmissible as a remedial clarification of contract language or to prove the insurer's liability.

A key indicator of the future of Indiana law is currently pending before the Indiana Supreme Court in National Union Fire Insurance Co. v. Standard Fusee Corp. , 917 N.E.2d 170 (Ind. Ct. App. 2009), transfer granted, in which the Indiana high court is expected to revisit, inter alia, the interpretation and application of the absolute pollution exclusion under Indiana law.

Laura A. Foggan, a partner, and Parker Lavin, an associate, at Wiley Rein LLP, contributed this month's Case Brief. Foggan is a member of this newsletter's Board of Editors.